Payroll – Basic Procedures

New employer

In order to set up a Pay As You Earn (PAYE) scheme with HMRC it is necessary to contact the New Employer’s Helpline on 0300 200 3211 or register online via the HMRC website.

As an employer you will be responsible for operating PAYE and National Insurance (NI). There are also certain statutory payments you may have to make from time to time which you need to be aware of. These include:

  • statutory sick pay (SSP)
  • statutory maternity pay (SMP) and
  • ordinary and additional statutory paternity pay (OSPP and ASPP).

A vast amount of information is available on the HMRC website detailing the operation of PAYE together with online calculators these can be found on HMRC’s website www.hmrc.gov.uk and as part of HMRC Basic PAYE tools.

If requested HMRC will send you several booklets and tables to enable you to make the relevant deductions and payments to your employees. However the majority of employers use the HMRC Basic PAYE tools or equivalent software.

From April 2013 HMRC have introduced major changes to the way in which payroll is processed. The system known as Real Time Information is explained in the Payroll Real Time Information factsheet.

What tax do I have to deduct?

By using the calculators provided on HMRC’s website or equivalent software, you should be able to calculate the tax and NI due in respect of your employees.

The tax due for a particular employee is calculated by reference to their gross pay with a deduction for their tax free pay which reflects their particular circumstances (using their coding notice and the pay date). The remainder of the pay is subject to tax and this is calculated using the Basic PAYE tools or software.

Tax is generally calculated on a cumulative basis, looking at the individual’s circumstances for the tax year to date.

 

What about NI?

NI is payable by the employee and the employer on the employee’s gross pay for a particular tax week or month and is calculated on a non cumulative basis. The NI can be calculated using the HMRC Basic PAYE tools or equivalent software.

 

When does the tax and NI have to be paid to HMRC?

The tax and NI should be paid to HMRC by the 19th of the month following the payment. Tax months run from the 6th to the 5th of the month, so if an employee was paid on 25 July (tax month being 6 July to 5 August) the tax and NI would need to be paid over to HMRC by 19th August.

Any employer can pay electronically, if they wish, taking advantage of the cleared electronic payment date of 22nd as opposed to the usual 19th.

Employers whose average monthly payments are less than £1,500 are allowed to pay quarterly rather than monthly.

Large employers, with more than 250 employees, must pay tax and other deductions electronically.

PAYE penalties for late payment

HMRC may charge a penalty where tax is paid late. The liability to a penalty will be based on a totting up procedure depending on the number of defaults during a tax year. A penalty will not be levied for the first default and will then rise as follows:

  • up to three defaults – 1% of total amount of those defaults;
  • four to six defaults – 2% of the total;
  • seven to nine defaults – 3% of the total; and
  • ten or more defaults – 4% of the total.

If any tax is unpaid six months after the penalty date, then a penalty of 5% will be levied and a further 5% can be levied after 12 months. Penalty notices are issued up to two years after the end of the relevant tax year and the penalties will be applied on a risk basis.

It is important that employers make payments on time.  If you are having difficulties paying these liabilities please do get in touch as soon as possible.

Forms you will need to complete

You will need to complete the following forms or maintain the equivalent digital records:

  • P11 Deductions working sheet. This form (or a computer generated equivalent) must be maintained for each employee. It details their pay and deductions for each week or month of the tax year.
  • P60 End of year summary. This form has to be completed for and given to all employees employed in a tax year.
  • P45 Details of employee leaving. This form needs to be given to any employee who leaves and details the earnings and tax paid so far in the tax year. New employees should let you have the form from their previous employer.
  • Starter Checklist. When a new employee starts you will need to advise HMRC so that you can pay them under RTI. Some of the necessary information may be obtained from the P45 if the employee has one from a previous job.

Real Time Information – a major change for payroll

The new system of Real Time Information (RTI) is mandatory for all employers and has been implemented from April 2013.

Under RTI employers or their agents are generally required to make regular payroll submissions for each pay period during the year detailing payments and deductions made from employees on or before the date they are paid to the employees.

Payroll processing

Under RTI the payroll submission you make each pay period must be sent to HMRC on or before the day the employees are paid.

Payments to HMRC

Please bear in mind that under RTI HMRC will be aware of the amount due on a monthly/quarterly basis.

More detailed guidance and information on operating your payroll under Real Time Information can be found at http://www.hmrc.gov.uk/payerti/index.htm or in our Payroll Real Time Information factsheet.

 

Penalties

HMRC impose penalties on employers who fail to:

  • keep the necessary records
  • operate PAYE or NI correctly
  • make the correct statutory payments
  • provide HMRC or the employees with the relevant forms on time
  • make online submission of forms where required
  • pay on time.

It is important that employers comply with all the regulations.

 

How we can help

The operation of PAYE can be a difficult and time consuming procedure for those in business. We will be happy to show you how to operate PAYE correctly, offer ongoing advice on particular issues, or to carry out your payroll for you so please do contact us.